Sponsor Unit Premium?

There shouldn't be a premium at all- sponsors can mess up a building with their outsized voting power and different interests; sponsors overhang a building's apt values with their own sales; sponsors make you pay transfer taxes.

This offered unit in Southgate indicates no board approval and the price seems in line with similar units in the building. But someone told me that for Southgate, sponsor units still require management company approval. Anyone familiar with the difference between board approval and management approval?

- 434 East 52nd - https://streeteasy.com/building/434-east-52-street-new_york/9d#

In many buildings sales of unsold shares are designated as "approval of the managing agent which shall not be unreasonably withheld" - the key part of that phrase being "not unreasonably withheld." As you know, normally boards can withhold their consent "for any reason or no reason." So in other words, if the managing agent does withhold their consent they can be required to give a reason.
But an important question to be asked is: is this unit being offered as "unseld shares? Under most offering plans the sponsor must specifically designate the sale as such, with the understanding that the sponsor continues to guarantee the payment of Maintenance to the coop should this new holder of unsold shares default. The reason this is important for the buyer is that most offering documents are written as such that the buyer/holder of unsold shares retains the Privileges of the sponsor - immediate rights to sublet and the same "managing agent only" approval on their sale, so long as they never moved into the unit themselves.

Sorry, left by out "sublet without board approval or payment of the usual sublet fees".

30 Yrs raises a good question - if this sale offers purchaser option to become designated holder of unsold shares then that would indeed warrant a premium for investment buyers looking for a rental property. Of course that designation would become null if the purchaser or purchaser's family ever occupied the unit.

Thanks 30. I know you have experience with sponsor held units. Does every transferor of unsold shares need to guarantee maintenance payments or can the transferee qualify with board approval?

I will check on this "not unreasonably withheld" language. Both Southgate and London Terrace Towers have offered units that say "no board approval". If this language is included, would managing agent approval be similar to what is done for a condo?

Lastly, do you think a premium on unit price makes sense?

One of the reasons I am asking about Sponsor units is that the Southgate board package I believe requires six reference letters - three personal, three business, one bank, one employer. I am retired as a full-time employee for a number of years so do not want to jump through these hoops again at this point in my life.

You have to look at the specific offering plan because this is one of the few things that actually differs from building to building. But in addition to that you also have to ask further questions because there are some coops that even though there is language in the offering plan they disregard it and all you will be buying is a lawsuit. Also there are a lot of cases where the original sponsor went bankrupt and there are issues as to whether just because shares are unsold they qualify officially as "unsold shares" status.
Secondly, even if they are officially "unsold chairs" unless the sale is designated by the transferor as a "sale of unsold shares", without the guarantee they do not retain their "unsold shares" status (but again you have to look at the specific offering plan in the section regarding unsold shares).
And yes, the "managing agent approval only" is similar to that of a condo, except that condos don't have the right of rejection, they generally have a right of first refusal, whereas in this case the managing agents rejection is a rejection just as if it was a board rejection of the transfer. However, a lot of managing agents are somewhat loathe to pull this trigger because since they are the ones doing the rejection (and cannot simply say "we did it because the board told us to") they can be opening themselves up to a lawsuit from the prospective purchaser (especially if the language specifically States "not to be unreasonably withheld" and they refuse to provide a valid reason).
Lastly, never take a broker's word for any of the above. Firstly because the vast majority of them don't even know the difference and secondly you will be signing a contract where one of the Clauses says that you didn't rely on real estate brokers representations, set-ups, Etc.

Thanks again, 30. It seems like the "premium" for a sponsor-owned unit depends on the specific terms of the offering plan. I am not surprised sponsors ask for a premium but a buyer really needs to know more about what value it adds, although that may never be known with certainty until a purchase contract is signed and you hear back from the board. Bit of a Catch 22.

Ximon, if you are paying $99K more but plan to live in the unit yourself, I would pencil that out as paying between $500 and $1000 per page of co-op board application, just for the privilege of skipping the application process. I personally would endure the aggravation, and then head off to one of the world's great spas to wash the memories away.

ximon, even if there is no offer of 'transfer of unsold shares' a sponsor unit still carries a premium because purchasers don't need to go through the board application process. This is a huge plus for purchasers who are concerned their finances won't pass muster with strict board requirements, or for purchasers who just don't want to deal with the the whole dratted nuisance of the application and approval process. If you plan to purchase to occupy, then transfer of unsold shares would not apply to your purchase anyway.

Ali, the miser in me would never pay $99,000 more than what the property is worth i.e. what I could flip it for. Buts that's apparently what it comes down to as Squid I think is alluding to since buying from a sponsor does not transfer the same value premium to me as an occupant.

Squid,
I think the problem with that theory is that in general you don't see no board approval sponsor sales in very tough coops - they are usually in buildings that are not extra tough to pass the board anyway. So you are usually paying a premium for not that much benefit.

In some sponsor units, making less of a down payment may be acceptable, again depending on the terms of the offering plan. I myself would op for a sponsor apt. rather than dealing with board approval. And I would not only check the offering plan, but as I think one knows, also read the amendments.

Even in tough co-ops there could be sponsor unsold shares. Most co-ops if not all were once rental buildings. And depending when the building went co-op determined the number of sponsor held unsold shares. For instance there was a time when eviction plans required only 35% of the tenants to buy, and then the co-op plan was approved. The tenants that didn't buy had 90 days to vacant the premises.

A) as far as "most if not all coops were rental buildings": certainly not all. We are seeing new co-op buildings being built even today. This is because you cannot have a co-op on leased land (except in special cases like Battery Park City and Roosevelt Island). So you have buildings like 10 Bond St, 70 Charlton St, etc. (And going back to the 1980s buildings like 50 Lexington Avenue).
B) I'm confused as to what point you are trying to make regarding 35% subscription eviction plans. The law changed back in the eighties bumping it up to 51%. Are you saying that you think that there are sponsors who went through the trouble of doing an eviction plan over 35 years ago specifically so that they didn't have to deal with unsold units/shares yet still heading on 4 decades later are still hanging onto them?
C) while when the building went coop has some effect on the amount of unsold shares, let's remember that there were many, many more non eviction plans that eviction plans. The number of unsold units is mostly affected by the discount to Market that statutory tenants we're paying in rent and the discount to Market that the Insiders prices were. Generally speaking, the discount to Market of insiders prices decreased overtime (anyone who did insiders rights deals knows how much more difficult these were to do as time went on because once you reach 1986 The Insider's prices weren't enough of a discount to pay anything for the rights in most cases).
As a result, the later the building was co-op'ed, in general the higher the percentage of unsold shares. As it turns out, in general, these later coops also turn out to be the less difficult to get into buildings as far as board approval. One of the reasons for this is after the late 80s Market correction, buildings with high percentages of unsold shares became extremely difficult to finance in, thus also extremely difficult to sell in, and there for extremely anti productive to have a very difficult Board process to get into.

As far as I know, Battery Park City buildings are all condominium ownership. 2 Fifth Ave, a co-op used to be land leased until about ten years ago.
There were many eviction plans in the eighties. I would think that some sponsors wanted to hold onto at least some unsold shares especially in the early eighties when the real estate market was going up. Also I do not believe senior citizens were evicted. Then the market crashed, and most investors would want to wait to sell. But I know that there are sponsors whether going back to the days of eviction plans or not, there are still sponsor apartments in some good buildings. I noticed a few sponsor apartments that sold at 2 Fifth Ave. just recently. And you say that the sponsors "went through the trouble of doing an eviction plan." I would think that evicting rent stabilized tenants would be well worth the trouble of the conversion process in the eyes of the landlord, and as far as I can remember they had to go. It's hard to believe that they had to go maybe I am wrong. That said landlord tenant court then was so stacked against a landlord. Then if a tenant had a gripe against a landlord he could withhold rent without even placing it in escrow. I met a landlord who told me that the court put a 7A administrator in the building meaning that she no longer could collect rent.

And while it is true that the spread between insider prices and outsider prices decreased as time went on, there were still deals to be had. As I can remember Park West Village converted to condominium in about 1986, actually it may have been earlier. But also Lincoln Towers. Then the stock market crashed in1987 and that cooled the market until it crashed in the early nineties. And then there were really cheap apartments being auctioned off, and in general the real estate market was no longer attractive, at least to some. People started to invest in internet stocks. Forbes magazine said that Donald Trump's net worth went negative. and so buying tenants rights was no longer worthwhile for many reasons.

And yes I think that what you mentioned in your last paragraph about all the co-ops in the late eighties with so many unsold shares made it difficult to sell apartments. That would depend on just how high the percentage of unsold shares there were. If the percentage was or is not astronomical then it may be very possible to obtain a PERS approval every two years for the building.

Sorry, I meant to say that you cannot have a condo on leased land except in special cases like Battery Park City and Roosevelt Island.

Sponsors also tend to price high because they can generally afford to have the unit sit on the market for a long time at higher asking prices hoping someone can bite. And don't forget the deal will start at the default terms of you paying the transfer taxes.

B17 probably has some kind of strings attached - looks like a typical case where the regulated tenant passed away and there's a sponsor renovation in place. If you buy with sponsor rights I would be wary of being encumbered by regulated status of the unit (likely given time on market). If you buy to live then you lose sponsor rights and really aren't getting a great deal for a bit of board pkg work.

B17 is a much nicer reno than 331 but the apartment may be smaller. One needs to adjust for that.

300, I have not seen the inside of B17 but went to the open house for #331 yesterday. Very well attended. Unit was in good condition but not new by any means. Apparently, no gas service in this building according to agent and open river views will not last long as site is owned by Solow and planned for high density maybe a high tech campus. I think it will sell very close to ask at $1,000 psf.

I don't know what floor B17 is on and even think it may be a typo as I see no other units with a B designation.

I think sponsor premium for B17, if can be achieved, is $50-60,000 as unit appears in slightly better and certainly newer condition than #331.

But for maybe $100,000 more than the ask for B17, I could buy the sponsor unit at 434 East 52nd Street for around $780 psf. Maintenance though is $1,500 higher.